The UAE economy has finally flung off the problems of the global financial recession and is looking as strong as ever as the Dubai stock market crossed the 5,000 mark for the first time since August 2006, matching Abu Dhabi, which is running around 5,100 at levels not seen since 2008. A steady stream of announcements of significant IPOs and sukuks show that both the private and public sectors feel that the markets are ready to provide the essential capital that everyone needs to fund the new growth.
It is also encouraging that the growth in stock markets does not all come from one sector. Pre-2007, there was a dangerous dominance of real estate in the market, but this time, the growth is spread wider, with sectors like banking and telecom contributing to the recovery as well as real estate and construction companies, which are all reaping the benefits of the Expo 2020 optimism, combined with the natural strength underlying the UAE economy.
The prospect of a market correction, as happy investors sell out to make some short-term gains, does not affect the long-term trend of the UAE’s economy taking advantage of its position at the intersection of Asia, Europe and Africa to become one of the world’s major hubs over the next 10 years. While the local market is obviously of interest, the true strength of the UAE’s companies lies in how they are positioned to become regional leaders. The airline and telecom sectors have led the way in making acquisitions and developing business outside their home market and the construction companies are not far behind. However, the UAE’s banks have always been hesitant to become global players that their size and experience would seem to indicate they could become.
The increase in business flying around the UAE’s economy will benefit everyone as jobs become more secure and companies start to expand again. It is important that this does not lead to another bubble and both the government and stock market authorities will need to watch the situation carefully.
